The Spectacle Blog

Small Steps Toward a Better Tax Code

By on 11.17.11 | 12:39PM

Details have leaked out about the tax deal that Republican members of the deficit Supercommittee offered to Democrats. Led by Sen. Toomey (Penn.), the GOP takes aim at itemized deductions, broadening the base while lowering the rates in a scaled-down form of some plans we've seen from the Simpson-Bowles commission, Rep. Ryan and GOP contenders.

— All marginal income tax rates would be lowered by 20 percent, meaning the top rate would go from 35 percent to 28 percent and the bottom rate would go from 10 percent to 8 percent.
— The top tax rate on capital gains would remain 15 percent.
— The top tax rate on dividends would remain 15 percent.
— The estate tax would stay at 35 percent, with the first $10 million of a married couple's estate exempt.
— The tax benefits from itemizing deductions and excluding employer-provided health insurance from taxable income would be limited to 2 percent of taxpayer's adjusted gross income.
— A new measure of inflation would be used to adjust the tax brackets each year, resulting in more people jumping into higher tax brackets as their wages increase.

According to the GOP's estimates, the plan would amount to a net revenue increase of $290 billion over ten years. Democrats claim that the revenue increase would fall disproportionately on middle-class income-earners. After a decade in which the Bush tax cuts made the tax code more progressive than ever, it's difficult to raise revenue without raising the code's progressivity and at the same time making a meaningful dent in the deficit.

My suspicion is that Democrats are just ideologically committed to a high marginal rate, and don't care how they get there. The Left romanticizes the 70% rate of the 1970s, even though it didn't bring any more revenue than the lower rates of today. That will make it very, very difficult to get to a sane, pro-growth reform of the tax code.

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